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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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These Regulations Could Further Boost Natural Gas Prices

Major development this past week in the world’s top natural gas play — the Marcellus shale of the northeastern U.S.

Lawmakers in Pennsylvania — where the bulk of the Marcellus is located — finally introduced a set of new drilling rules for wells in the state. Capping an effort that’s been underway for years now.

And last Friday, an oil and gas industry group said these laws could be incredibly damaging to the shale industry here.

The group of natgas producers, called the Marcellus Shale Coalition, filed a petition with Pennsylvania courts to block parts of the new drilling rules. Saying that they impose unnecessary burdens on drillers without having a material effect in protecting the environment.

The rules — which were officially passed into action by Pennsylvania on October 8 — have a number of sticking points for industry. For one, they allow a wider spectrum of groups to challenge the location of proposed drill holes. With stakeholders like schools, playground owners, municipalities, and water supply owners now all having right to comment — whereas before, only state agencies could do so.

The new rules also require enhanced monitoring of existing wells around new drill locations during fracking operations. And call for much more extensive measures in handling water at drill sites.

All told, the Marcellus Shale Coalition estimates that the rules will require drillers in Pennsylvania to submit nearly 70 additional forms and reports for each well. Which the group says could increase per-well drilling costs by as much as $2 million — representing a 30% increase above current costs. Related: What Happens If The OPEC Deal Fails?

Obviously these players have a vested interest — and it remains to be seen if these numbers turn up accurate. But if they do, the new drill rules will represent a major drag on well economics and drilling activity in the Marcellus.

That would be a critical development for the U.S. natgas market. Given that the Marcellus is the only gas play in America that’s enjoyed substantial production growth over the last five years.

Any rule-driven slowdown in drilling here would therefore greatly restrict overall U.S. natgas supply. Giving a further boost to prices, which are up as much as 80% since May. Watch for results of the court challenge to the drilling rules, and for any changes in drilling activity and production here over the coming months.

Here’s to reining in a giant.

By Dave Forest

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